Explaining why, right or wrong, (Italian) households do not like reverse mortgages

According to economic theory, elderly homeowners should be much more eager than they actually are to adopt financial instruments allowing them to borrow against home equity. This paper investigates the determinants of interest for the Italian elderly in one such instrument, the reverse mortgage. We draw from a unique dataset, UniCredit’s 2007 survey on household savings, and use a discrete choice model (ordered probit) to perform our empirical analysis. Outof 1,200 respondents, roughly 60% claimed to have no interest in the product, while the remaining 40% expressed various degrees of appeal, from quite low to very high. Three main findings emerge from our analysis: first, homeowners who are prepared to sell their home aremore likely to be interested in the product. Second, respondents perceive reverse mortgages as personal debt, even though the burden of repaying the loan lies with their heirs, and debt aversionpredicts low interest. Third, homeowners who are more concerned about their standard of living in retirement are more likely to be interested in the product. We find, however, no conclusiveevidence supporting our a priori notion that greater financial literacy is a predictor of higher interest in RMs.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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